This research material discusses the scenario prevailing in the Global economy and provides a glimpse on the effects of the global financial crisis and the significant measures taken under the theme of 'God's Global Governance'
In September 2008, the US Federal Reserve (Fed) and various other Central Banks including the European Central bank, Swiss National bank, Bank of Japan, the Bank of England and the Bank of Canada extended swap lines needed for both term and overnight liquidity agreements.
In September 2008, guarantees for deposits and debts of its domestic banks were provided by lreland. In October 2008, South Korea announced a US$130 billion financial-aid package to improve banks' ability to arrange overseas loans. In October 2008, the Swedish Government announced a US$202 billion rescue package to boost liquidity.
The Fed increased its monthly auction limit to US$300 billion in October 2008, up from US$20 billion when the Fed began the program. The Fed lifted its cap after raising it to US$620 billion in October 2008. US$250 billion was allocated to banks in exchange for an equity stake in financial institutions in the form of senior preferred shares. The Fed cut down its target rate to 1% in November 2008, from 5.25% in September 2007. US$100 billion in stimulus checks made their way to 140 million tax filers to boost consumer spending and help grow the economy. US$4 billion went to states and municipalities to help buy and rehabilitate foreclosed properties.
The Fed began to lend an unlimited amount of money to finance banks' purchases of debt from money-market funds. The Fed then agreed to purchase up to US$69 billion in money-market debt directly. Fed stated in Oct 2008 it would loan directly to money market funds up to US$600 billion.It was extended for six months in November 2008.
In December 2008, General Motors and Chrysler received US$17.4 billion from the US Government on account of the liquidity crisis. In February 2009,the U.S.government boosted its equity stake in Citigroup Inc. to as much as 36 percent. Both manufacturing and financial services sectors required support for recovery.
I believe that the global financial crisis, which had begun in 2008, has resulted in a changing face of the world. It has resulted in a global slowdown. Financial economies will slow down, however real economies will be stable. I have always maintained that there will be convergence between the two and we see it happening now.
During the peak of the financial crisis in 2008, the US Federal Reserve and the UK Central Bank planned Quantitative easing. By late November 2008, the Fed had started buying US$600 billion in Mortgage-backed securities. The quantitative easing policies undertaken by the central banks of major developed countries since the global financial crisis resulted in reducing systemic risks. The US Federal Reserve also disclosed the results of stress tests of major U.S banks in 2009 to restore confidence. Stress tests are vital to show that balance sheet components are well driven.
Though we have not seen a solution to the global crisis, the markets have quickly risen on account of easing measures from various Central Banks. In my opinion, the Speculators have driven the financial markets and have made it their gambling grounds. If you look at real-estate and stock markets, they are pure speculation and hence not ethical. Banking should focus on lending and funding as part of ethical financing and no speculation should prevail in the framework. If you look at the global credit crunch today, the toxic assets and financial tsunami are on account of unethical economies. Financial economies have created a banking crisis, which now impacts the rest of the world. It is necessary to understand the causes of the global financial crisis and the key areas that require focus. It is time to call for global governance and consensus over how to manage risk and to see that investments or lending are an advantage for the common good. The effects were only felt later; there definitely was a root cause to this economic roller coaster.